The downside of the strategy was that while scheduled trades cost only $4 at Sharebuilder, real time trades cost $9.95 (all sell orders are real time trades). My plan was to keep the shares for decades, to let it appreciate, and then sell it whenever I needed it. Today I learned about a promotion code, sent out on flyers, for five free trades at Sharebuilder with the promotion code HVC09NY.

The promotion code is for market trades only, limit trades still cost $9.95. I run a small risk of being hosed by the market but it does let me close things out cleanly. The code appears to give five trades on one account and only one per person, so I’m stuck with one Sharebuilder account.

If you’ve been waiting to exit a position and balked at the $9.95 commission, now is your opportunity to exit it for free. One step closer to simplifying our finances!

The point is not ask your accountant whether to invest in bonds or stocks or where they think the price of oil will go. Instead, the exercise is to determine how tax efficient or tax inefficient your investments are.  Fees, inflation and taxes are the trinity of factors reducing any investor’s return. There are products which address the first two factors- mainly low cost ETFs and real return bonds, but tax efficiency requires a much more individualized solution than purchasing a flow through shares or other tax friendly vehicles.

Since tax rates, income splitting, loss carry forward and loss carry back rules tend to vary from jurisdiction to jurisdiction, one cannot simply pull a tax friendly product  off the shelf (setting aside whether such a vehicle may eventually be subject to audit scrutiny if found to be too taxpayer friendly) and believe the solution has been found.  While a tax reduction product (for lack of a better term) may possibly reduce taxable income, is the reason why taxable income is higher than desired is because the taxpayer/investor has the wrong products in the wrong place?

In a nutshell, there are different tax treatments for interest/salary, dividend income and capital gains/capital losses. Taxation policy tends to favor the taxpayer investing in businesses. Hence, there is favorable tax treatment if the taxpayer sells stocks for a profit (whether publicly owned or privately owned). The return for our savings, in the form of interest income, is penalized with a higher tax rate (leading to a law of unintended consequences which I will address in a future post).  Since most investment advisors do not complete their client’s tax returns, the tax effect of products  can be glossed over in product selection.

Having spoken to some accountants about this topic, the general consensus seems to be that most taxpayers ignore the tax implications of their investments. Too many interest bearing products are in non-tax deferred accounts resulting in, after inflation and taxes, a de facto negative return. For taxpayers who are employees, and do not have the full range of deductions available as business owners, there is less tax planning flexibility to reduce such oversights and/or errors.

As a practical tip, after reviewing your taxes with your accountant, think about arranging a time to see your accountant after the tax season and show them your investment portfolio. The key is not to focus on whether they think you bought the right product but whether your over-arching strategy and tax implications of your product selection make sense given your income, life-stage and tax history.

In 2007, the 5 largest American financial services stocks (JP Morgan, Wells Fargo, US Bancorp, Bank of America and Citigroup) represented 14 cents of every dollar paid in dividend by the S & P 500. In 2010, these same 5 stocks are on track to pay only 2 cents of every dollar in dividend.

Many believe that the banks will not be increasing their dividend soon. All of this bad news raises the question of whether it is time to reassess how many bank stocks should be in a dividend portfolio.

Let’s start with the simple question- are the good times over for banks increasing dividends? The short answer may be yes.

S & P has stated that the historical dividend growth rates is 5.6% per annum. From the period of 1995 to 2008, the smallest percentage dividend increase by Wells Fargo was 7.6% with 7 annual double digit percentage increases. Similar results can be found for each of Wells Fargo’s counterparts.  In other words, banks displayed historically anomalous dividend increase behavior in the last 15 years which can be replicated if the same economic conditions exist.

If you assume that banks will revert back to the norm with respectable 5.6% ish annual dividend increases, it stands to reason that investors, such as myself, have no real reason to be overweight in banks especially since dividend increases for some banks are really recovery of dividend cuts of the past several years.

If you assume the opposite, that banks will eventually regain their shine, the events of 2008-2009 indicate that such rewards come with proportionate down side risk; these are not your grandma’s bank stocks and regulatory freedom gave the banks the rope to succeed and eventually hang themselves as well. Given such risk/reward, should an investor with a less than steely resolve, and a strong stomach for watching paper losses, be overweight in this industry?

Regardless of whatever assumption one believes, since diversification is the only free lunch in investing, what should be the proper weighting of banks? There is no definitive answer other than what is NOT the correct answer for most investors.

A portfolio consisting of over 50% in banks stocks would be overweight. Money could invested in industries which work counter-cyclical to bank stocks (consumer staples) or may be more stable dividend payers (utilities which is regulated on pricing supporting, and capping, earnings).

The question, which I do not have an answer to, is whether one counts bank issued preference shares in determining the percentage of bank stocks in an asset allocation. In a near worst case scenario, a bank could suspend its dividend payments but continue to pay its preference shareholders. But the yield on preference shares is partially a function of the balance sheet health of a bank. Any thoughts are appreciated.

A weighting of under 10% may probably be too low for many average investors, keeping in mind that bank stocks tend to lead both Wall Street and Main Street recoveries and, once upon a time, they were actually safe stocks. If we return to a pre 1991-2008 normal, they may soon be again.

I would suggest as a model dividend portfolio something analogous to Nurse911’s dividend portfolio in terms of sector diversification and mixture of growth/mature stocks. As you can see, his dividend portfolio has a goldilocks exposure to financials- not too hot and not too cold.

Finally, there is a geographic drifting towards bank stocks one has to be aware of. The U.S. S & P Dividend Aristocrats has only a 7% weight in financials. The Canadian counterpart has approximately 39%.  In other words, purchase a dividend ETF tracking the Canadian S & P Dividend Aristocrats will naturally give you a large exposure to bank stocks.

This gap is partially explained by the poor results of the American banks versus their Canadian counterparts and partially by the fact the Canadian stock markets are basically compromised of financial stocks and commodity stocks (which suggests buying a board based Canadian equities ETF in tandem with a Canadian dividend ETF is substantially an exercise in redundancy). Thus, an overweight position in bank stocks may be a function of geography and there should be a greater focus by Canadian investors to ensure they are not drifting into an overweight in bank stocks.

As I started to do more research on stock certificates, I finally understood why prices for stock trades had fallen so much in the last twenty years. The process for buying a certificate isn’t difficult, it just takes a bit of time, and there are a few options out there. Some of which are actually quite pricey, relative to the price of GM at the time (eighty five cents).

Did you know there’s a name for the “study and collection of stocks and bonds?” It’s scripophily and it’s a specialized field of numismatics, which is study and collection of currency. It’s appeal is in intricate designs and engravings of some stock certificates (and sometimes because of the signatures on the certificates, like John D. Rockefeller of Standard Oil Company).

The Process

Whenever you buy stocks through a broker, they’re usually registered in “street name.” The street name is the name of your broker and this facilitates the buying and selling of stocks on the open market. For example, if I were to buy a share of Coca-Cola, TradeKing take my money and buy the shares. They would buy the shares in their name and Coca Cola would recognize them as the shareholder, they would not know who I was. When Coca Cola pays out dividends, TradeKing sends them my way. When Coca Cola requests a vote, TradeKing sends me the proxy.

If you want the shares, you will need to employ the services of a transfer agent. Each company works with a transfer agent to issue shares of stock, you will need to work with one to get a stock certificate issued in your name. You can do this by buying shares through a company that will interact with transfer agents on your behalf (like OneShare), or you can do it yourself by either buying directly with a transfer agent or through a broker.

Buy Through a Transfer Agent

You will need to track down the transfer agent for the company whose shares you want. You can usually find this information in their Investor Relations section or anywhere they share their direct investment/purchase plans. For example, if you want to buy shares of American Express, you need to work with The Bank of New York Mellon and their BuyDIRECT program. Once you make a purchase, you can request that they mail you a physical stock certificate.

Buy Through A Broker

As I mentioned earlier, if you buy stock through a broker it will be registered in street name. After you’ve made the purchase, you need to contact your broker to find out how to get the shares transfered to the transfer agent for the company. Once you’ve made the transfer to a transfer agent, the process is the same as working through a transfer agent.

Best Way to Buy a Stock Certificate

It comes down to why you want the physical certificates, since there is no financial benefit to having the paper certificates (in fact, it makes them more illiquid since you have to send them back in if you want to sell it). If you’re buying it to collect, you may want to go with a service like OneShare because then you can have it framed, not folded, and shipped in a way that preserves it’s condition (but it’s not cheap!). If you want the cheapest option, it’s probably cheapest to buy it directly from the transfer agent and have it mailed to you. You can get a nice frame from a local crafts store and still end up with a nice little keepsake.

Of, if having an actual legitimate certificate isn’t that important, nothing stops you from just searching for and printing out a high quality scan of a certificate.

The S&P 500 hit resistance at 1150 last week and is now pulling back.  It’s all about the trend channels at this point.

Right now, it looks like this overbought condition should get worked off by either going sideways (and consolidating for a while) or by pulling back to trend channel support (the lower purple line). That’s the swing trade.

See the S&P 500 during January? It went sideways range bound. Don’t rule that out over the next week or so.

Stay Away from the Market Leaders

Some key stocks may be topping right here. This doesn’t automatically mean that it’s all downhill from here — it just means that they are pulling back right now. I’m sure some of the biggest name stocks will bite the dust in this pullback, but at this moment in time it’s something you want to be aware of.

Most big name stocks on Wall Street right now are probably not good ideas to be a buyer of at this moment in time. A lot of these names could easily just pullback to the 50-day moving average. If you are long-only or looking to gain some long exposure then you need to see some sort of Pull back Off Highs (POH) pattern to form from here over the next few days at least. That’s what we’d be looking for anyway.

The Pullback Off Highs pattern is one of the most bullish and constructive long side set-ups out there. Rather than going straight up, an index or stock will typically make a move higher, then spend sometime consolidating those gains down to an area of chart support (such as its 50-day moving average) before making another move into new high ground.

When a stock clears these consolidation periods, it’s your opportunity to buy them and take advantage of the next run — the bonus part is when you catch a stock at the beginning of a new uptrend, you’ll often get to trade the stock and lock in profits over and over again. And since you are buying it at the point where it’s just started a new move and is near support, your trade’s risk is minimized.

On the flip side, a Double Top is your early warning alert pattern that lets you know in advance that a “Change In Trend” may be near.

If you are long the market, you’ll want to see these leaders pullback from here and form a constructive Pullback Off Highs pattern allowing you to enter them at a risk adverse entry point.  So far, the pullback in the markets is constructive and that bodes well.